Monday, July 15, 2013

Direct Taxation

Man is the creation of God. The State and Corporation are creations of man.

Man is a natural being. The State and Corporations are artificial beings.

The economy exists only in the minds of human. Where there are no human minds, there is no economy.

The human mind is the source of the economy. As the source of the economy, individual minds should be the heart of the tax system.

The Fair Tax cuts people out of the taxation system. It replaces direct tax on people with a massive tax on retailers and service providers.

The Fair Tax buys support by giving people a prebate. The prebate is a new entitlement funded by a massive tax on business.

The Fair Tax creates a structure in which the wealth of the nation flows from big business to big government. People are shut in a gilded cage lined with entitlements, but not free.

Tax reform needs to place people at the center of the economic universe.

This can be come by replacing the withholding system with an account based collection system.

The withholding system was designed for a different age. It was designed for an age when accounting was done by hand in ledgers.

Today we have computer to maintain accounts.

I would not trust the Federal Government to create an accounting system. A better approach is as follows. The government would define a model for the accounting system that includes rigorous testing and auditing features. Private enterprise would then implement the design and host the accounts.

(This is how Object Oriented Design works).

Object Technology allows different systems to co-exist. We could start a reform by defining an object model that can be implemented as the current withholding interface or as a system of tax aware accounts.

The Treasury Department would define the object model along with testing, auditing, and certification procedures for the accounts.

Private businesses would design accounts. We would run the accounts through a rigorous testing protocol to assure that they calculate taxes correctly and that the tax is roughly equivalent to what people would pay in the withholding system.

The Object Tax can be rolled out in beta tests with a limited audience to prove the concept.

People are resistant to change. Once the system is in production, people would only change to the new system if they see a benefit. Since we have rigorously tested the new tax system to assure that it collects the same tax, the only benefit people would perceive is one of efficiency.

People would switch to the Tax Aware Accounts created by the Object Tax if they see a benefit, such as a reduction in compliance costs or greater ability to manage personal finance.

The Object Tax is not disruptive. The program simply creates an alternative interface for the existing income tax.

A Tax Aware Account works as follows: Workers get their whole paycheck (nothing withheld). They must pay a progressive tax when they withdraw money.

Hey, wait a second. This Object Tax magically transitioned our income tax into a consumption tax without the disruption of the FairTax. Go Figure?!

More importantly, this approach to tax reform places the individual mind at the center of the tax universe.

People will pay their taxes directly. Their accounts will maintain a complete and accurate accounting of their income, their taxes and other expenses giving the individual greater control over personal finances.

I say we scrap the FairTax, which cuts people out of the taxation equation, and work on a reform that re-establishes the individual as the heart of the economy.


Chris said...

Income tax policy needs to focus on U.S. job creation.


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y-intercept said...

"Job creation" is the wrong target.

The actual target needs to be wealth creation.

Better yet the target of tax reform should be increased ownership, reduced personal debt and more financial independence.

Our preoccupation with "jobs" is one of our undoings. Policy passed with the express purpose of creating jobs often results in undermining individual ownership.

The economic ideals of the US founders was more in tune with ownership than jobs.

I think Adam Smith got it right. His book was about the Wealth of the Nation and not the Jobs of the Nation. Actions that increase the well being of the individual people in a nation improves the overall wealth of the nation.

Wealth is not simply about jobs. Wealth is about ownership.

A society with widespread ownership will have near full employment as those who've done well will employ those still climbing the ladder.

When the government attempts to increase employment by taxes on ownership, the policies end up undermining the wealth creation engine that created the jobs.